IN THE UTAH COURT OF APPEALS 

----ooOoo---- 
Prosper, Inc., 
Petitioner, 
v. 
Department of Workforce 
Services, Workforce Appeals 
Board; and Katrina E. Iversen, 
Respondents. 
----- 
Original Proceeding in this Court 
Attorneys: Daniel J. Anderson, Provo, for Petitioner 
Suzan Pixton, Salt Lake City, for Respondent 
Department of Workforce Services 
----- 
Before Judges Billings, McHugh, and Orme. 
ORME, Judge: 

¶1 Prosper, Inc. petitions for review of the Workforce Appeals 
Board's decision affirming the award of unemployment benefits to 
Katrina Iversen. Prosper argues that the Board erroneously 
applied the "residuum rule" in concluding that Prosper failed to 
sustain its burden of proof because Prosper relied exclusively on 
hearsay evidence. We agree with Prosper that the Board 
misapplied the residuum rule. 

BACKGROUND 

¶2 Prosper is a Utah company that provides, among other 
services, long distance financial education services and 
products, including individual phone sessions with "financial 
coach[es]." Iversen began working for Prosper as a financial 
coach in March 2005 and provided one-on-one financial coaching to 
Prosper "students."1 Initially, Iversen was allowed to work
primarily from home, and she did so from March until September 
2005. 

¶3 On September 9, 2005, Iversen was advised, in writing, that 
her work performance was unsatisfactory. As part of this 
Employee Disciplinary Warning, Prosper informed Iversen that she 
needed improvement in four specific areas. First, she was asked 
to "[i]mprove[] management of [her] students and schedule." 
Second, she needed to "[r]espond to all student communications 
within 24 h[ou]rs." Third, "[a]ll coaching [needed] to be done 
from [the] Prosper coaching office." Fourth, she needed to 
"[b]egin regular monitoring of other coach's sessions." The 
written warning also notified Iversen that "[f]ailure to correct 
the items listed above may result in other disciplinary action up 
to and including termination." Following a face-to-face meeting 
with Jason Coulam, Prosper's Executive Vice President for 
Fulfillment, Iversen signed her acknowledgment of the written 
warning. 

¶4 After the written warning was issued, Iversen still 
occasionally worked from home. Prosper continued to track 
customer complaints about Iversen through its Customer Management 
System (CMS). When a customer registered a complaint about 
Iversen, a Prosper employee would document the complaint by 
entering it into the CMS. In addition, some customers would 
directly email their complaints, which were then entered into the 
CMS. After receiving numerous complaints about Iversen, Prosper 
made the decision to terminate her, and she was officially 
terminated in late February 2006. Prosper maintains that 
Iversen's continued violation of the performance criteria set 
forth in the written warning was the reason for her termination. 

¶5 On February 27, 2006, Iversen filed for unemployment 
insurance benefits. The initial Workforce Services adjudicator 
concluded that "[j]ust cause [for termination] is shown and 
[unemployment] benefits are denied." Iversen appealed the 
initial decision to a Department of Workforce Services 
administrative law judge (ALJ). In preparation for the hearing, 
Tim Peterson, Prosper's Human Resources Manager, created a 
spreadsheet listing the complaints against Iversen that had been 
documented in the CMS (the CMS spreadsheet). The CMS spreadsheet 
was then presented at the hearing as evidence of Iversen's poor 
performance record, justifying her termination. According to the 
CMS spreadsheet, complaints about Iversen were received from 
eleven people between early September 2005 and February 21, 2006. 
The ALJ received evidence regarding customer complaints 
registered against Iversen, including the CMS spreadsheet and
direct testimony from Prosper employees Jason Coulam, Tim 
Peterson, and Lorin Hardy.2 Iversen testified in her own behalf. 

¶6 The ALJ reversed the initial adjudicator and awarded 
unemployment benefits, assessing the cost of Iversen's benefits 
to Prosper. The ALJ reasoned that the direct testimony offered 
on Prosper's behalf and the CMS spreadsheet all constituted 
hearsay and, therefore, that Prosper "offered no firsthand 
evidence or otherwise competent legal evidence to establish that 
[Iversen] was guilty of the job performance issues alleged 
against her." As a result, the ALJ concluded that Prosper "has 
not established a final incident of culpable conduct requiring 
[Iversen's] termination[,]" and that Iversen was therefore 
entitled to unemployment benefits. 

¶7 On May 9, 2006, Prosper filed an appeal with the Board, see 
Utah Code Ann. § 35A-4-508(4) (2005), which affirmed the ALJ's 
decision, adopting the ALJ's "reasoning and conclusions of law 
. . . in full." Prosper subsequently filed a request for 
reconsideration. See id. § 63-46b-13(1)(a) (2004). When the 
Board denied that request, Prosper timely filed a petition for 
review with this court. See id. § 35A-4-508(8) (2005). 

ISSUE AND STANDARD OF REVIEW 

¶8 Prosper argues that the Board erred in concluding that 
Prosper only presented hearsay evidence during the hearing and in 
refusing to premise its findings on what Prosper believes was 
competent evidence.3 Under the Utah Administrative Procedures 
Act (UAPA), this court may grant relief where "a person seeking 
judicial review has been substantially prejudiced [because] . . .
the agency has erroneously interpreted or applied the law." Id. 
§ 63-46b-16(4)(d) (2004). The determination of whether evidence 
constitutes hearsay is a question of law that we review for 
correctness. See State v. Olsen, 860 P.2d 332, 335 (Utah 1993). 

ANALYSIS 

¶9 Generally speaking, an individual is ineligible for 
unemployment benefits if he or she is discharged for just cause. 
See Utah Code Ann. § 35A-4-405(2)(a) (2005); Utah Admin. Code 
R994-405-201 (2006). To establish that a discharge was for just 
cause, an employer must prove three elements: culpability, 
knowledge, and control on the part of the employee. See Utah 
Admin. Code R994-405-202 (2006). In affirming the ALJ's 
decision, the Board concluded that Prosper failed to sustain its 
burden of proof regarding these three elements. More 
specifically, the Board concluded that Prosper provided 
"insufficient legally competent evidence" by relying exclusively 
on hearsay evidence at the hearing. We disagree. 

¶10 Under UAPA, "[h]earsay evidence is clearly admissible in 
administrative hearings." Mayes v. Department of Employment 
Sec., 754 P.2d 989, 992 (Utah Ct. App. 1988). See also Utah 
Admin. Code R994-508-109(9) (2006) ("Oral or written evidence of 
any nature, whether or not conforming to the rules of evidence, 
may be accepted and will be given its proper weight."). It is 
also true, however, that "[u]nder the residuum rule, 'findings of 
fact . . . must be supported by a residuum of legal evidence 
competent in a court of law.'" Mayes, 754 P.2d at 992 (quoting 
Yacht Club v. Utah Liquor Control Comm'n, 681 P.2d 1224, 1226 
(Utah 1984)). 

¶11 We recognize that we have sometimes used imprecise language 
in the past when talking about the residuum rule. Thus, in 
Mayes, we said that "under the residuum rule, 'findings of fact 
cannot be based exclusively on hearsay evidence.'" Id. at 992 
(emphasis in original) (citation omitted). While it is true that 
findings of fact must be supported by a residuum of legally 
competent evidence, and therefore cannot be based solely on 
inadmissible hearsay, it is equally true that hearsay can 
constitute legally competent evidence. In Mayes, then, we should 
have clarified that findings of fact "cannot be based exclusively 
on inadmissible hearsay evidence" because admissible hearsay 
evidence is "evidence competent in a court of law." This point 
was explicitly made in Industrial Power Contractors v. Industrial 
Commission, 832 P.2d 477 (Utah Ct. App. 1992), where we pointed 
out that the claimant's medical records, although hearsay, "would 
have been admissible in a court of law . . . as an express 
exception to the hearsay rule," id. at 479, and that "[t]he
residuum rule requires that findings be supported by a residuum 
of legally competent evidence, not that they be supported by 
'non-hearsay' evidence," id. at 480. "Certain hearsay is 
admissible in a court of law and is therefore legally competent." 
Id. See, e.g., Utah R. Evid. 803(1), (2) (providing that present 
sense impressions and excited utterances, while hearsay, "are not 
excluded by the hearsay rule"). 

¶12 It is also true that statements that appear on the surface 
to be hearsay sometimes are not. Hearsay evidence is defined as 
"a statement, other than one made by the declarant while 
testifying at the trial or hearing, offered in evidence to prove 
the truth of the matter asserted." Utah R. Evid. 801(c). 
Accordingly, if an out of court statement is offered for some 
other purpose--e.g., to prove that it was made and not for its 
truth--it is not hearsay. 

¶13 At the Board hearing, Prosper provided both testimony from 
its employees and the CMS spreadsheet as evidence that Iversen 
continued to be the subject of customer complaints after the 
written warning was issued, thus providing Prosper with just 
cause for her termination. This evidence was not hearsay because 
it was not introduced for the truth of the matter asserted--i.e., 
that the customer complaints were true--but simply to prove that 
the complaints had been made. Cf. Kelley v. Airborne Freight 
Corp., 140 F.3d 335, 346 (1st Cir.) ("We agree that a customer 
complaint offered to show, for example, that a decisionmaker had 
notice of the complaint, rather than to prove the specific 
misconduct alleged in the complaint, is not barred by the hearsay 
rule."), cert. denied, 525 U.S. 932 (1998). Prosper offered 
evidence of customer complaints about Iversen not to establish 
the truth of any particular complaint, but simply to show she was 
the object of numerous customer complaints and thus an employee 
who did not perform satisfactorily.4 Accordingly, the evidence
was not hearsay and should have been considered by the Board in 
making its factual findings regarding whether Prosper met its 
burden of proof.5 

¶14 We conclude that the Board erred in failing to consider the 
testimony that complaints were made and the related CMS 
spreadsheet. Accordingly, we reverse and remand for the entry of 
new factual findings, which may be based on the non-hearsay 
evidence offered by Prosper as well as on any other legally 
competent evidence, including admissible hearsay. Once those 
findings are made, the Board shall enter an appropriate order in 
view of those findings. 
______________________________ 
Gregory K. Orme, Judge 
----- 
¶15 WE CONCUR: 
______________________________ 
Judith M. Billings, Judge 
______________________________ 
Carolyn B. McHugh, Judge


notes:

1 Prosper often refers to customers who participate in the 
telephone coaching services as "students." 


2 Prosper now asserts that there was sufficient evidence to 
support Iversen's termination for the attendance violations 
presented by her continued insistence on working from home, but 
Tim Peterson testified that Prosper would not have fired Iversen 
just for "telecommuting" and that customer complaints were the 
main reason for Iversen's discharge. Accordingly, we address 
only the evidence regarding customer complaints. 

3 Prosper also argues that the Board erred by misapplying the 
business records exception of the hearsay rule, see Utah R. Evid. 
803(6), to the CMS spreadsheet. We conclude, however, that the 
direct testimony and the CMS spreadsheet were improperly excluded 
under rule 801(c), see id. 801(c), and therefore reverse on other 
grounds. Accordingly, it is unnecessary for us to consider 
whether the CMS spreadsheet constitutes an admissible business 
record. 

4 One reality of the workplace is that customer satisfaction 
is largely a subjective matter. If an employer gets repeated 
complaints that an employee is rude, for instance, the employer 
may properly terminate the employee, even if in some absolute 
sense the employee has good manners and merely "appears" rude to 
customers. That complaints are made is the real problem from the 
employer's standpoint--not whether the complaints are "true" in 
the usual sense. See, e.g., Knezevic v. Hipage Co., 981 F. Supp. 
393, 395-96 (E.D.N.C. 1997) (holding, in the context of pregnancy 
discrimination case, that numerous customer complaints about 
employee, along with other less significant problems, constituted 
"legitimate, non-discriminatory reasons for the employment 
[termination] decision," and that employee failed to rebut 
employer's showing even though employee offered comments from her 
former supervisor to the effect that "she was an exemplary 
employee"). 

5 The Board argues that admitting customer complaints as nonhearsay 
under rule 801(c), see Utah R. Evid. 801(c), violates 
Iversen's due process right to confront witnesses. We have 
already ruled that if evidence is presented for some purpose 
other than to prove the truth of the matter asserted, a party is 
not denied any due process rights when that evidence is admitted. 
See In re G.Y., 962 P.2d 78, 86 (Utah Ct. App. 1998) ("Because 
the out-of-court statements were not admitted for the truth of 
the matter asserted, appellant was not denied any opportunity to 
confront or cross-examine the declarant."). Moreover, Iversen 
had the opportunity to confront the witnesses who recounted that 
complaints were made.